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Pam Gencarella: Another Bubble to Burst in RI?

Thursday, April 17, 2014Pam Gencarella, GoLocalProv MINDSETTER™

Putting forth an edict can make it so in RI. The hard part is paying for it. When Governor Chafee, through an executive order, provided for the Health Insurance Exchange, he saw green. The original request of $65 million in green from the Federal government to create RI’s exchange and (presumably) another $23 million to run it the first year, for a total of more than $80 million.

What did we get for the $65 million we spent in federal funds to create the exchange? Increased competition as was touted by the proponents of Obamacare? Hardly, Blue Cross and Blue Shield covers 98% of RI’s insureds. Reduced insurance premiums? No evidence of that here. More people taken off the uninsured rolls? Absolutely.

The 65,000 of Medicaid new enrollees was beyond what the Governor’s office projected. But at what cost? Two-thirds were added to the rolls as a result of the decision to further expand Medicaid in the state. Although RI will begin paying for a portion of this cost beginning in 2018 (that’s only a few budgets away), we will pick up the full 10% by 2021. Then there is the other one-third of those who signed up for Medicaid who fall into a category (qualified for Medicaid prior to Obamacare) that leaves RI to pick up about 50% of the cost.

According to the Providence Journal (April 4, 2014), RI’s Secretary of HHS, Steven Costantino, said he was pleased the expansion went so well because it will add $500 million into the RI health care economy, but he could not predict the impact on the state Medicaid budget.

And therein lies the problem.

Not knowing the impact on the budget. Former Finance Chairman Mello was quoted as saying “We are just trying to figure out how this is going to work. We don’t know if we’re building a colonial, a mansion or a bungalow. It always seems like we’ll continue with construction (and) we’ll worry about how much it’s going to cost us later ”.

That is precisely why it is the role of the Legislature to provide an open debate and create laws, and it is the role of the Executive Office to carry out those laws. The presumption is that the debate centers around estimating the cost and determining how to pay for it. While it is a noble goal to provide health insurance to all RI citizens, how can our leaders implement this type of sweeping policy change not knowing the impact it will have on the RI budget and therefore on the RI taxpayer? What percent of that $500 million will be coming from the taxpayer?

The RI Center for Freedom and Prosperity published a report on its website about the cost of the Exchange. It shows a timeline of estimates that have left the state not knowing how much the Exchange and the Medicaid expansion will cost the taxpayer. In 2011, original projections estimated 127,000 private plan enrollees through the exchange. In 2013, those projections dropped nearly in half with estimates of 64,000 enrollees and then, ultimately, dropped again by more than half to actual results of only 28,000 enrollees in private plans. Instead of a system created to handle 127,000 private enrollees, it is currently handling less than one-quarter of that. That means the cost per transaction just shot through the roof.

Back in January, business groups in RI provided the Governor and the General Assembly with a position paper that clearly indicated their sentiment about who pays for the $23 million operating cost of the Exchange - not them. The RI Business Group on Health, RIMA (RI Manufacturers Association), the NFIB (National Federation of Independent Businesses) and the Providence Chamber of Commerce all agree that this cost should not be born by businesses that do not use the Exchange, nor should it be born by insurance carriers or health purchasers in general, nor should there be a general assessment fee on all claims paid in the state. However, here’s the rub. If, as reported in the Pro Jo, a total of 92,000 people signed up for health coverage through the Exchange and 70% of the those users are Medicaid recipients, that leaves only 30% of the users to pay for the annual operating cost of the Exchange. Hmmm, if you do the math, at todays level of private enrollees, that’s over $800 a year for those individuals, some of whom already qualify for subsidies. Not a pretty picture. That’s the problem with edicts in a representative government. You can’t just dictate how the bill gets paid.

So, has the Exchange, with an initial set up cost of over $65 million and an annual maintenance cost of $23 million, really turned into a very expensive advertising campaign to increase the number on medical welfare with no plan for funding these handouts and no plan for funding the operating infrastructure that helps hand them out. Where does that leave the RI taxpayer? The cost of both the Medicaid expansion and the operation of the Exchange are just two more bubbles that will need to be addressed at some point in the near future.

Remember the Trojan’s line (paraphrasing), ‘beware of those bearing gifts’.

Next edict on the agenda - turn the Exchange into a one-stop shopping portal for all welfare benefits. In a press release, the Administration announced, “We will continue our work....to create a place where Rhode Islanders not only can compare and buy health insurance,but also check to see if they qualify for Medicaid - and eventually, food stamps and other government programs.”

Who will take control?

The State Senate has asked the Governor to explore the possibility of relinquishing the operation of the Exchange to the Federal government. Even if that comes to fruition, the full cost of maintenance may very well not be covered and it won’t address the issue of expanded Medicaid. At some point, the General Assembly will need to approve a budget that includes the costs of the Exchange, which, as part of the process, should include a robust debate about the allocation of RI’s scare resources and how to deflate the bubble dubbed ‘The RI Dependency Portal’.

Pam Gencarella is a member of OSTPA, a taxpayer advocacy organization in Rhode Island.

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